Correlation Between Liuzhou Chemical and Guangzhou Zhujiang

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Can any of the company-specific risk be diversified away by investing in both Liuzhou Chemical and Guangzhou Zhujiang at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Liuzhou Chemical and Guangzhou Zhujiang into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Liuzhou Chemical Industry and Guangzhou Zhujiang Brewery, you can compare the effects of market volatilities on Liuzhou Chemical and Guangzhou Zhujiang and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Liuzhou Chemical with a short position of Guangzhou Zhujiang. Check out your portfolio center. Please also check ongoing floating volatility patterns of Liuzhou Chemical and Guangzhou Zhujiang.

Diversification Opportunities for Liuzhou Chemical and Guangzhou Zhujiang

0.51
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Liuzhou and Guangzhou is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Liuzhou Chemical Industry and Guangzhou Zhujiang Brewery in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Guangzhou Zhujiang and Liuzhou Chemical is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Liuzhou Chemical Industry are associated (or correlated) with Guangzhou Zhujiang. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Guangzhou Zhujiang has no effect on the direction of Liuzhou Chemical i.e., Liuzhou Chemical and Guangzhou Zhujiang go up and down completely randomly.

Pair Corralation between Liuzhou Chemical and Guangzhou Zhujiang

Assuming the 90 days trading horizon Liuzhou Chemical Industry is expected to generate 2.32 times more return on investment than Guangzhou Zhujiang. However, Liuzhou Chemical is 2.32 times more volatile than Guangzhou Zhujiang Brewery. It trades about 0.12 of its potential returns per unit of risk. Guangzhou Zhujiang Brewery is currently generating about -0.01 per unit of risk. If you would invest  305.00  in Liuzhou Chemical Industry on September 12, 2024 and sell it today you would earn a total of  19.00  from holding Liuzhou Chemical Industry or generate 6.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Liuzhou Chemical Industry  vs.  Guangzhou Zhujiang Brewery

 Performance 
       Timeline  
Liuzhou Chemical Industry 

Risk-Adjusted Performance

18 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in Liuzhou Chemical Industry are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Liuzhou Chemical sustained solid returns over the last few months and may actually be approaching a breakup point.
Guangzhou Zhujiang 

Risk-Adjusted Performance

4 of 100

 
Weak
 
Strong
Insignificant
Compared to the overall equity markets, risk-adjusted returns on investments in Guangzhou Zhujiang Brewery are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Guangzhou Zhujiang may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Liuzhou Chemical and Guangzhou Zhujiang Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Liuzhou Chemical and Guangzhou Zhujiang

The main advantage of trading using opposite Liuzhou Chemical and Guangzhou Zhujiang positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Liuzhou Chemical position performs unexpectedly, Guangzhou Zhujiang can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Guangzhou Zhujiang will offset losses from the drop in Guangzhou Zhujiang's long position.
The idea behind Liuzhou Chemical Industry and Guangzhou Zhujiang Brewery pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.

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